Real estate technology firm Opendoor (NASDAQ:OPEN) has soared with the stock now up almost 400 percent compared to where it was just a month ago.
Opendoor, along with many other beaten-down stocks, has benefited from a new wave of retail investor interest that has sent it rapidly skyward.
Today, let’s explore the dynamics behind the stock’s rise and whether or not it’s too late to buy Opendoor stock.
A Brief History of OPEN Stock
To fully understand Opendoor’s stock pricing, it’s useful to look at the history of volatility that has surrounded it. OPEN reached a peak price of over $35 per share in early 2021, driven both by market enthusiasm for tech stocks at the time and an influx of retail investors looking for large returns.
Opendoor’s tech-driven approach to real estate investment was understandably appealing, but the stock sold off quickly and hasn’t been above $5 since 2022.
The most recent surge hasn’t brought OPEN anywhere near its 2021 prices, but the sudden spike in the last month is part of a resurgent meme stock phenomenon that has also swept up stocks like Krispy Kreme and Kohl’s.
Retail traders have mostly driven OPEN up, breathing fresh life into a stock that traded below $1 per share as recently as two weeks ago.
OPEN’s spiking prices were triggered by social media posts from hedge fund manager Eric Jackson, who believes that prices could rise as high as $82 per share. Jackson does have something of a track record with deeply beaten-down stocks, having gotten massive gains from Carvana as it rebounded from single-digit price territory.
Much of Jackson’s thesis behind Opendoor hinges on it being the last business of its kind standing after Zillow and Redfin abandoned their own plans to buy and flip residential properties.
With no meaningful competition and a national platform, Jackson and other Opendoor bulls reason, the business could be in a good position to benefit from a stronger real estate market.
Opendoor’s Growth Prospects
Though OPEN has gotten caught up in meme stock buying, the business may well have some positive prospects in the near future.
To begin with, Opendoor has been able to significantly expand its buying activity over the last year, with the $2.4 billion worth of inventory it had at the end of Q1 representing a 26 percent increase over the year-ago quarter. Analysts project that revenue growth could rise to as much as 20 percent next year, followed by 12 percent in 2027.
Opendoor has the potential to benefit from a reduction in interest rates later this year. Lower interest rates will benefit the business both directly and indirectly.
On the direct side, lower interest rates is set to reduce Opendoor’s financing costs. Indirectly, lower rates also tend to increase home sales, thus potentially helping the business sell more of its inventory on a quicker timeline.
This ties in with Opendoor’s status as the last large online property buyer, as it alone would be left for sellers to turn to when the market eventually heats back up.
With that said, Opendoor’s overall financials are still quite uninspiring. Revenues have declined in all but two of the last 10 quarters, and the business has reported a trailing 12-month loss of $0.52 per share against an average stock price of just $1.47 over the same period.
Opendoor’s losses have remained fairly steady over the last two years, and it doesn’t seem that the business has immediate prospects of improving them or becoming profitable.
Moreover, Opendoor’s sales dipped in Q1 even as it increased its inventory. Opendoor sold 2,946 homes in Q1 against 3,078 a year earlier. While a larger inventory could be very useful for Opendoor’s growth, the business will have to expand its selling to match in order to hit the revenue numbers that are expected over the next two years.
A final consideration to keep in mind is that Opendoor’s business model hasn’t proven particularly attractive so far. Though the idea of a technology platform that buys and sells real estate is intriguing, the business hasn’t scaled nearly as well as early investors had hoped it would. Though Opendoor may very well still succeed, history doesn’t necessarily suggest that it will suddenly become especially more valuable.
What About Valuation?
Even after rising as much as it has, OPEN’s valuation doesn’t look outrageous. The stock currently trades at 0.4 times sales and 2.9 times book, giving it a market cap that’s still under the $2 billion mark.
However, Opendoor also has many of the classic characteristics of a value trap. With the stock rising meteorically without material improvements to the fundamentals of the business, investors may well be paying too much, even at what seem like low pricing multiples.
This view is largely reflected by analyst price forecasts, which offer an average target of $1.25 for OPEN. This would imply a downside of over 50 percent. The stock also doesn’t have a single buy rating, though all eight of the analysts currently covering it do rate it as a hold.
Is It Too Late to Buy OPEN?
Because it’s spiking far more on market sentiment and its own momentum than fundamentals or realistic growth expectations, Opendoor has bullish tailwinds on its back.
Similar meme stock rallies in the past, however, suggest that the upward momentum could be short-lived and followed by a large selloff. So, while there could still be some short-term upside left in OPEN, it’s likely not an appealing option for most investors.
Notably, Jackson’s fund is reportedly relying on AI models to identify investment opportunities. While this is not a novel approach to finding potentially undervalued stocks, it’s also a largely unproven idea that may or may not yield positive results. This methodology may amplify the risks associated with buying Opendoor, as the stock now suffers from likely overvaluation on top of an investing approach with limited real-world testing.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.